To jump-start the U.S. economy, they’re available for one year only:

1. Small businesses have an enhanced Section 179 deduction of up to $250,000 (increased from $128,000).
2. All businesses can claim an immediate 50 percent deduction for qualifying depreciable property placed in service in 2008.

Given the short-term opportunity for savings, consider whether it makes sense to accelerate your investment in fixed assets this year.

Overview of stimulus changes

	$250,000 Section 179	50 Percent Bonus Depreciation
Timeframe	Tax years beginning in 2008	January 1, 2008 through December 31, 2008
New vs. used assets	Both	New only
Trades	Boot only	Entire basis
Eligible assets	Equipment, fixtures, and other property subject to Section 1245 depreciation recapture	Assets with a recovery period of 20 years or less; qualified leasehold improvements
Phase-out of deduction	Yes, if qualifying additions exceed $800,000	No

Section 179: increase in expensing amount
Effective for tax years beginning in 2008, the Section 179 expense limit has been increased from $128,000 to $250,000. And, the asset addition phase-out threshold has been increased from $510,000 to $800,000.

As a result, businesses with Section 179 asset additions more than $800,000 have a dollar-for-dollar reduction in their Section 179 limit, until ineligible for any Section 179 deduction at $1,050,000 of asset purchases.

Remember, this is a one-year provision, applicable only to tax years beginning in 2008. For example, if your fiscal year begins November 1, 2008, you will have the enhanced Section 179 deduction available from November 1, 2008–October 31, 2009.

Be aware, these enhanced deductions may not be available for state income tax purposes.

Return of 50 percent bonus depreciation
Bonus depreciation was first introduced in 2001 following the September 11 terrorist attacks, and it generally expired at the end of 2004.

The Stimulus Act restores the 50 percent bonus depreciation as a first-year deduction for property purchased and placed in service after December 31, 2007 and before January 1, 2009 (contrast this with the Section 179 expansion, which is available for tax years beginning in 2008).

The increased Section 179 deduction and the 50 percent bonus depreciation can both apply to your business: claim the Section 179 deduction first, apply the 50 percent bonus to the remaining (reduced) cost.

The 50 percent bonus deduction generally applies to:

• Tangible property that has a recovery period not exceeding 20 years
• Purchased computer software
• Water utility property
• Qualified leasehold improvement property

The Stimulus Act allows the bonus depreciation deduction for both regular tax and the alternative minimum tax (AMT), so it will not create an AMT adjustment.

Qualification rules

• The 50 percent bonus does not apply if there was a binding contract in place to acquire the property prior to January 1, 2008.
• The bonus depreciation applies to new property only; used property is ineligible.
• If a new asset is acquired by trade, both the boot and any remaining depreciable basis of the relinquished asset qualify for the 50 percent bonus.
• Leasehold improvements qualify if made to an interior portion of a building which is nonresidential real property, and if the building is more than three years old. But eligible leasehold improvements do not include enlargements of a building, an elevator or escalator, internal structural framework, nor does the 50 percent bonus apply to improvements to property leased between related parties.
• The 50 percent bonus depreciation electively can be declined by a taxpayer.
• New passenger automobiles used in business, which normally are subject to a first-year depreciation limit of about $3,000, are allowed an additional amount of $8,000 during 2008.

How LarsonAllen can help
Contact us to discuss the new law and evaluate your business situation—so you can decide whether or not to take advantage of these benefits.

The stimulus package also includes rebates for eligible individuals.